Millennial founders raise first VC fund after three-year struggle

In August 2017, then 20-something entrepreneurs Hugh Stephens and James Alexander declared they were going to raise a $20 million fund to support founders graduating from university accelerator programs. Young and ambitious, the pair admit they had no idea how hard that would prove to be.

Now, more than three years later, the pair are halfway to their original goal. Having closed the first $10 million tranche of Galileo's first fund, Alexander can breathe a sigh of relief, but it's mixed with a healthy dose of humility.

"When we started we were a bit naive," Alexander, the head of University of Sydney accelerator program Incubate, tells The Australian Financial Review.

"My mentors warned me it would likely take a long time, but we thought we could do it in six months or a year.

"Now I know how hard it is for first-time fund managers to get a fund up and running. It doesn't matter if you've been an entrepreneur before or come from a finance background, you have to find people willing to back you for the first time as a fund manager."

One of the biggest barriers, Alexander says, was getting the first investor on board because nobody wanted to be the first person to take a risk.

Alexander and Stephens approached high net worth family offices globally but were faced with continual rejections.

There were points when the pair considered throwing in the towel, but they persevered. Both also worked full-time in their respective roles – Stephen running his boot-strapped start-up Sked Social – while raising the fund.

Now, thanks to some wealthy individuals, an unnamed university and local seed-stage venture capital fund Artesian, the entrepreneurs have enough capital to start investing in their pipeline of deals.

The fund will invest $200,000 in companies that will then participate in a 12-month accelerator program, designed to help predominantly young founders make the jump from university-level programs, where they may have been granted $30,000, to the next scale.

"A big part of why we started this was because we saw untapped talent in university entrepreneurs coming out of the programs," Alexander says.

"Our sweet spot is ... focusing on the period where you're too early for most traditional VCs, but further along than needing a $30,000 grant.

"We have the ability to do follow-ons ... but a big chunk of our success will be whether or not our companies are able to get outside investment after we invest. That will be a big success metric of the program."

Galileo will start investing in its first cohort of start-ups in October.

Requiring no "warm introductions" or referrals, founders can apply online and the fund is committed to responding within 72 hours.

The program will also be run virtually – and was always planned to be – allowing founders from all over Australia or New Zealand to take part.

Monash University, Alexander says, has been the fund's longest supporter and has helped the founders devise the program.

While Alexander and Stephens are kicking off the fund with $10 million, the pair still hope to raise an additional $5 million to $10 million to bring the end close to $20 million.

"We're just going to get going now. We're launching in a pandemic and I never in a million years thought we would be," Alexander says.

"But lots of universities are saying they've seen a surge in entrepreneurship ... and there's questions to be asked about the outlook for emerging founders in the jobs market today and the huge uncertainty around it. There's a shift of people who may not have started a company before who might be forced to."

Alexander admits being young and unexperienced when it comes to funds management made the pair hard to say yes to, but now he's ready to start deploying capital, he is confident Galileo can deliver returns that will "speak for themself".

"There were a lot of times when we thought, 'why bother?'" he says.

"We've chosen to go into VC and it's a tough space ... and we're at the seed stage, which is the hardest because it's so early ... so we had to go through a lot of nos.

"But it's about persistence in this space and now it's time to prove ourselves."